Full & Final Question

[upwards4ever]

Hi everyone.

This is my first post but have been in forum for a few weeks now. So much information, I wish I'd discovered months ago!

We've been in IVA since feb 2006 so a quarter of the way along the path to debt free life already! We've been reading with interest some of the posts re offering early settlements and was wondering if we would be too early into our arrangement to offer a lump sum.

We've been manageing to keep up our payments but with rising interest rates things are getting tighter and tighter. In fact on the last couple of interest rate rises we kept our mortgage payments the same as we couldn't afford the increase but this just means it's now almost just paying the interest. With another rise this month and our discounted mortgage finishing in August this year our payments will soon become solely interest paying and will probably increase at that. We were thinking it might be worth making a full & final settlement offer before we get pushed into a corner.
Total debts were £65,000 and IVA payments are £430 per month with 4th year equity release clause. Arrangement is for 26p in the £ minimum.
I know even at the 4th year, unless our income increases dramatically we will probably not be able to raise any more on our mortgage with our income levels.
My father in law has said he would consider lending us £20,000 (he would need to raise it against his own house) if it could help us get a clean start.
Do you think this might be a feasable offer? Considering we've already paid in 15 payments of £430, a further £20,000 would be more than the agreed 26p in the £ especially as the IP fees would be less as the IVA would finish more than 3 years early.

Do you think we should talk to our IP now about this suggestion or wait until rates go up and moneybelt gets squeezed?
Sorry if this is a bit long winded.

Going Upwards4ever!

[MelanieGiles]

Hi upwards and forever and welcome to the forum

I think that the offer you are making is sensible, as everyone with a mortgage who is in an IVA is suffering from interest rate rises and struggling to maintain their contributions.

The key test of whether your offer is realistic will be to value the level of equity in your own property at this moment in time. Could you confirm the present value of your property and the amount you owe on your mortgage.

It is even more important for you to consider the merits of an early settlement now, given that you are faced with remortgaging again when your current discounted rate ends, and I imagine no provision was built into your IVA for this when it was presented to your creditors.

A good IP will present your current circumstances fairly to the creditors, and probably recommend the early settlement as being in every parties interests.

Do continue to post and let us know how you get on.

Regards, Melanie Giles, Insolvency Practitioner for over 20 years.

For further details contact me at http://www.melaniegiles.com and view my IVA blog at: http://melaniegiles.blogs.iva.co.uk

[upwards4ever]

Property increases have been very good in our region. We haven't had a valuation but I would guess in the region of £180,000 with our outstanding mortgage just over £100,000. Our joint gross incomes are £24,000 so I can't see how we could increase our mortgage even with the equity being there. Can we be made to hold on until year 4 and then be forced to sell to raise the equity sum?

The only way I can see of raising a lump sum is by way of a loan from my father in law.

[MelanieGiles]

Sadly for you, if you now have £80,000 worth of equity in the property, and are caught for a 4th year valuation and equity release, I feel it is unlikely that creditors will accept a settlement of £25,000. If the house were to be sold now, you could afford to pay off all of the debts in full.

Can you reproduce exactly the wording of your equity release clause so that I can advise further. And do be aware that you can enter into a self-certified mortgage which is not linked to earnings but affordability.

Regards, Melanie Giles, Insolvency Practitioner for over 20 years.

For further details contact me at http://www.melaniegiles.com and view my IVA blog at: http://melaniegiles.blogs.iva.co.uk

[upwards4ever]

Exact wording is 'Property is to be valued shortly after the fourth year anniversary of the arrangement and 75% the debtors equitable interest to be realised and paid to supervisor before completion of the arrangement. If necessary the arrangement can be extended to to allow an equivalent sum to be paid by way of ongoing contributions.'

Exactly how can this be enforced. Even on a self-cert we couldn't afford another £60,000 on top of our mortgage. If the property was sold we couldn't afford to start again on the property market...all the other houses have gone up in value also! Can we be forced to sell?

[MelanieGiles]

It can be enforced by asking you to sell the property - the key is in the wording "realised". This is generally acknowledged to mean via a re-mortgage, but is often left deliberately vague to cover all eventualities. I am suprised that your IP did not explain this to you on the day of the creditors meeting.

If your house valuation is right, 75% of the equity is now worth £60,000. Are both of you in IVAs with this same modification?

Regards, Melanie Giles, Insolvency Practitioner for over 20 years.

For further details contact me at http://www.melaniegiles.com and view my IVA blog at: http://melaniegiles.blogs.iva.co.uk

[upwards4ever]

sorry...exact wording should have finished with 'to be paid by way of ongoing contributions for a period of up to twelve months.'

A couple of questions after your last post...

Would a higher offer be more likely to be accepted? If we were offering a cash payment by way of a loan from a family member would they still insist on a property valuation?

[upwards4ever]

Yes, modification applies to both of us. All figures I gave earlier are total for both of us.

[MelanieGiles]

Anything is possible - but you will really need to get your IP to play on the affordability factor. I suggest you get your best quotes for an interest only mortgage to see how much you could afford to raise. This can then be put to your creditors at a variation meeting.

Regards, Melanie Giles, Insolvency Practitioner for over 20 years.

For further details contact me at http://www.melaniegiles.com and view my IVA blog at: http://melaniegiles.blogs.iva.co.uk

[upwards4ever]

Thanks Melanie. It's great to be able to get some expert advice in an informal way before approaching my IP. I was under the impression that the equity clause only really kicked in to the amount that we could borrow through a re-mortgage. I did not realise that we could be forced to sell to release the full amount. As all credit was originally 'unsecured', have we shot ourselves in the foot by entering into the arrangement as we could end up making our payments for 4 years and then still be forced to sell up?

I think we will suggest an offer to our IP and play on the affordability factor as you suggest. With the lump sum coming from a family member, hopefully a property valuation may not be mentioned.

Is there anyone on the forum we could speak to who could give us an idea of the amount of equity we could realise on our budget. I'm just wary of taking out an even larger 'interest only' mortgage to settle the IVA and then if interest rates continue to rise finding ourselves in an impossible financial position again!

[Adam Davies]

Hi
Speak to antony.parsons@btopenworld.com,he is a forum member[Welsh boy] and a mortgage broker.
regards

Andy Davie
IVA.co.uk Spokesperson and site manager
(aka Neverending)

Please check out my blog: http://andydavie.blogs.iva.co.uk

View my profile here:
http://www.iva.co.uk/andy_davie_profile.asp

[upwards4ever]

Cheers Andy. Will do